Analysis Report: Ajanta Pharma Ltd. (Sell; Estimated Price: ₹1020.428)

Ajanta Pharma Limited

Introduction :

This is a mid-sized Indian pharmaceutical company which is engaged in serving the domestic and international market from development to the marketing of the finished dosage. Its main focus is on the manufacturing of the Niche formulations. The company also focuses on the branded generics as a result of which, its brands enjoy leadership position in India as well as in the pharmerging markets. The company has its steps in various segments.

Shareholding Pattern

Category of Shareholder	No. of Share-holders	Total NO. of Shares	Number of shares	As a % of Total No. of Shares
(A) Shareholding of Promoter and Promoter Group
1) Indian
Individuals / Hindu Undivided Family	21	22,615,000	-	-
Bodies Corporate	2	3,356,905	1,445,500	43.06
Sub Total	23	25,971,905	1,445,500	5.57
(2) Foreign
Total shareholding of Promoter and Promoter Group (A)	23	25,971,905	1,445,500	5.57
(B) Public Shareholding
(1) Institutions
Mutual Funds / UTI	9	431,818	-	-
Financial Institutions / Banks	2	12,655	-	-
Foreign Institutional Investors	42	2,618,627	-	-
Sub Total	53	3,063,100	-	-
(2) Non-Institutions
Bodies Corporate	425	742,812	-	-
Individuals
Individual shareholders holding nominal share capital up to Rs. 1 lakh	12,451	3,407,808	-	-
Individual shareholders holding nominal share capital in excess of Rs. 1 lakh	22	1,772,272	-	-
Any Others (Specify)	486	219,503	-	-
Clearing Members	139	59,807	-	-
Market Maker	6	1,334	-	-
Hindu Undivided Families	24	13,867	-	-
Non Resident Indians	315	138,484	-	-
Trusts	1	1,500	-	-
Foreign Port Folio Investor Corporate	1	4,511	-	-
Sub Total	13,384	6,142,395	-	-
Total Public shareholding (B)	13,437	9,205,495	-	-
Total (A)+(B)	13,460	35,177,400	1,445,500	4.11
(C) Shares held by Custodians and against which Depository Receipts have been issued-m	-	-	-	-

Company People

Name	Designation
Mr. Mannalal Agrawal	- Chairman
Mr. Purushottam Agrawal	- Vice-Chairman
Mr. Madhusudan Agrawal	- Vice-Chairman
Mr. Yogesh Agrawal	- Managing Director
Mr. Rajesh Agrawal	- Joint Managing Director
Mr. Chandrakant Khetan	- Non Executive, Independent Director
Mr. K. H. Vishwanathan	- Non Executive, Independent Director
Dr. Anil Kumar	- Non Executive, Independent Director
Mr. Prabhakar Dalal	- Non Executive, Independent Director
Dr. Anjana Grewal	- Non Executive, Independent Director

Details of the Production and Services

Following are the verticals of the company.

The Company stood 5th, 13th and 24th in the Ophthalmological, Dermatological and Cardiological segments respectively in India in 2013-14. Following is the description of the above mentioned verticals-

·           Dermatology has total market size of ₹4826 crores (IMS MAT March14) registering a y-o-y growth of 19%. Ajanta has seen healthy growth in this segment with over 30% CAGR over the last five years. The Company has 48 brands in this space with four brands leading in their respective categories.

·           Second main sector in which company has its footprints is Cardiology. This sector has a total market size of about₹ 9423 crores, (IMS MAT March14). The company grew at 34% CAGR over the last five years in this sector. The Company has 27 brands in this space with seven brands leading their categories.

·           Last main market for the company is of Ophthalmology. Total market cap of this sector is ₹1300 crores and the company is showing 25% CAGR in this sector. The Company has 54 brands in this space with four brands leading their categories.

·           The company is also building its presence in the market related to pain relief.

Ajanta’s leading brands are Melacare range (₹530mn) in dermatology segment and Met-XL Range (₹510mn) and Atrofit (₹320mn) in cardiology segment. Ajanta has registered 1443 brands in the international market and has a pipeline of 1596 brands under registration.

In case of the anti malarial area company was amongst the 1^st company to have introduced Artemether+Lumefantrine in higher strengths such as 40mg+240mg; 60mg+360mg & 80mg+480mg to give dosage convenience to the patients resulting in better patient compliance.

Along anti-malarial product range includes:-

1. Artefan & Combisunate (Artemether+Lumenfantrine (20+120mg; 40mg+240mg; 60mg+360mg & 80mg+480mg Tablets, 20+120mg Dispersible Tablets & Suspension)
2. Apmod (Artesunate+Amodiaquine 25mg+67.5mg; 50mg+135mg; and 100mg+270mg Tablets)
3. Ridmal (Dyhydroartemisinin 40mg+ Pyramethamine 320mg Tablets)
4. Combimal (Sulphadoxine 500mg+ Pyramethamine 25mg Tablets)

Following is the description of the different areas in which company has its footprints:-

Cardiology	Dermatology	Ophthalmology
Atherothrombosis	Acne	Allergy
Coronary Artery Disease	Alopecia	Dry Eye
Dyslipidemia	Dermatitis/Eczema	Glaucoma
Hyper tension	Skin Infections	Eye Infections
Heart Failure	Moisturizers	Inflammation
	Pigment Disorders	Macular Degeneration
	Psoriasis	Retinopathies
	Sunscreens
	Scars

Manufacturing Infrastructure

 Currently the company has 4 formulation units and 1 API unit. Out of the 4 formulation units, three are in Maharashtra and one in Mauritius.

The cumulative formulation capacity on single shift for Ajanta stands for 1.5bn tablets, 425mn capsules, 21mn powder sachets and 8mn bottles.

Ajanta is planning to build two manufacturing plants in Gujarat (Dahej SEZ and Savli) where the Capital expenditure of ₹400 crores is estimated from the company side.

 About the industry

The Indian pharmaceuticals sector has carved out a significant global share by leveraging inherent strengths and enhancing regulatory and technical maturity. Currently, India exports drugs to more than 200 countries and vaccines and biopharmaceutical products to about 151 countries. Globally, India ranks 3rd in terms of volume and 14th in terms of value. Indian pharmaceutical industry is fairly fragmented with top companies contributing to 41% of total sales. The next ten companies contribute to 22% of sales while the remaining companies contribute to 37% of the total sale. The domestic formulations market with annual sales pegged at around ₹720 billion in FY13 has been globally ranked third in terms of volume and tenth in terms of value. It maintained a steady growth at a CAGR of ~12.5% during the past five years despite the lethargic economic conditions.

Five forces model to analyze the industry

Market Analysis

The company is very rational in choosing its market as well as the product. It choose the segment which were critically under-addressed with unmet needs offered a first-mover’s advantage, under-penetrated in therapeutic segments in which there is an opportunity to ensure sustainable growth, and allows the company to become the leader in many categories and focussed therapeutic presence specific to each market enables company to gain market share quickly.

Analysis of  Developed and Pharmerging Markets:-

If we have a look towards the market distribution of the company, it is mostly comprises of three types of markets-

1.        Domestic Market- This market of the company is comprises of total 4 therapeutic segments in which company has total product basket of over 160 products in the market. The company has deployed over 2500 Marketing representatives which are play a vital role for such kind of niche focused company to have a strong grip over the market. If we have a look to the revenue generation from this market, it is accounted for 33% (₹385 crore) of the total revenue of the company.

2.        Pharmerging Markets- Here, the company captures over 30 nations (primarily Asia and Africa) with a product basket of over 200 products. Africa contributes majorly by 53% of the global sales to the company. Here, the company has deployed over 450 Marketing Representatives in these nations. These nations are accountable for a huge part of the company’s revenue which is about 67% (₹793crores) of the total revenue earned by the company. The company selects the products on the basis of unmet medical needs in a particular geography and on the basis of that, they develop the product which leads to the variation in product basket of every nation.

3.        Regulated Markets- the Company is planning to step in the largest Global Pharmaceutical Market i.e. US. The Company received approval for two Abbreviated New Drug Applications (ANDAs) Risperidone and Levetiracetam. Company has 21 ANDAs at various stages of approval.

     

    

Financial Analysis

SUMMARIZED BALANCESHEET OF PREVIOUS YEARS

        

SUMMARIZED PROFIT & LOSSCCOUNT OF PREVIOUS YEARS

Growth of the sales has declined from 37.41% to 29.81% as compared to the previous year and stood at ₹1222.05crores. Cost of material is ₹299.03 has shown a dip of 6% as a percentage of sales. Other expenses have reduced to 27.58% of the sales at ₹337.1 Crores in 2014. EBITDA has shown a lift of 6.73% as compared to 2013. PBIT has also shown a straight rise of 6.79% as a percentage of sales as a result, PAT has jumped by 7.32% at 19.36% and stood at ₹233.8 crores in 2014.

RATIO ANALYSIS

The Debt/Equity Ratio has reduced to 0.19 in the financial year 2014 which shows highly unlevered nature of the company. Return on Capital Employed has improved from 37.19% to 41.68 % in FY2014 as compared to previous year. The next significant jump can be seen in the inventory turnover period which has shortened by 30 days.                      

PROJECTED BALANCESHEET OF NEXT FIVE YEARS

The company is planning to introduce a  Capex of 400 crores in 2015. The effect can be seen in the gross as well as the net block of the company. The estimation of debt has estimated accordingly.

PROJECTED PROFIT & LOSS ACCOUNT OF NEXT FIVE YEARS

It is expected that the revenues of Ajanta Pharama will increase at a rate of 25% y-o-y. After splitting the stock, the value per share is comes out to be 1020.428. Current market price of the stock is 1305.

PROJECTED CASHFLOW FOR NEXT FIVE YEARS

PRICE PERFORMANCE

 

About the Author

This report has been authored by Ayush Soni and published by Saion Chatterjee. Both are pursuing his MBA from Institute of Management, Nirma University, Ahmedabad, Gujarat, India.

Disclaimer

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidelines only.

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